Posted on May 6th, 2020 in Construction, Domestic Tax

CPP/EI RULINGS: Do they Trigger Payroll Audits?

construction worker in orange hat and orange safety jacket pouring cement

In a June 7, 2019 Technical Interpretation, CRA commented on whether a CPP/EI ruling triggers follow-up assessing and review. These rulings often determine whether a worker is a contractor or employee, and therefore whether EI and/or CPP should be submitted to CRA. They also often consider whether an employee that is a family member of the owner is earning insurable amounts. Rulings can be initiated by the worker, the business, or another party with an interest, such as CRA.

CRA noted that after the completion of a ruling, a referral to the Trust Accounts Examination Division (often leading to a payroll audit) is not automatically sent. However, it is sent in situations such as where:

  • the ruling changed the worker’s status from employee to self-employed, or vice versa;
  • a related worker was determined to be dealing at arm’s length and, therefore, insurable, but no EI premiums had been remitted; and
  • an employee relationship was confirmed but there were no source deductions remitted or T4 submitted.

When a referral is received, an examination officer will contact the employer for an appointment to review the payroll books and records. Deduction and remittances for the period covered by the CPP/EI ruling will be confirmed and validated.

The officer will also review CRA’s database to determine whether there are any outstanding GST/HST returns. If found non-compliant, the GST/HST books and records will also be reviewed.

ACTION ITEM: If CRA challenges the categorization of a worker (employee vs. contractor), keep in mind that the implications of a reclassification could be significantly greater than the costs associated with the individual worker.

Article originally published in: Tax Tips & Traps 2020 First Quarter – Issue 129.